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The Bank of Canada’s benchmark lending rate is in a holding pattern now, but savings accounts are already starting to offer lower returns.
The latest news on the super useful HighInterestSavings.ca website is a laundry list of rate cuts from the alternative banks that have for a year now offered the best returns for savers. The cuts are small – just 0.05 to 0.15 of a percentage point. But they’re also a sign of what’s coming in rates for savers and conservative investors.
The king of savings in mid-May was the Motive Financial Savvy Savings Account, with a rate of 4.1 per cent. You can do better than that with a variety of savings vehicles designed to be held in your investment account.
High interest savings accounts packaged like mutual funds had rates of 4.05 to 4.6 per cent in mid-May, and many offer deposit insurance through Canada Deposit Insurance Corp. HISA exchange-traded funds do not offer deposit insurance, but the yields are in the 4.8 per cent range these days.
To access HISAs in a mutual fund or ETF format, it’s easiest if you have a digital brokerage account. Transfer cash from your chequing account to your investment account and then invest in a fund that works for you. When you need the cash, place a sell order and stand by for a couple of days to see the cash in your investment account. Transfer that cash to your chequing account and away you go.
A quick way to undo the benefit of a high rate on a HISA investment product is to incur commissions to buy and sell. HISAs packaged as mutual funds generally cost nothing to buy or sell, but HISA ETFs may cost up to $9.99 per buy and sell. Some brokers don’t charge to buy ETFs, but regular commissions apply to sell orders. The three brokers with zero commissions, period: Desjardins Online Brokerage, National Bank Direct Brokerage and Wealthsimple Trade.
A trio of brokers – BMO InvestorLine, RBC Direct Investing and TD Direct Investing – do not allow clients to access HISA ETFs. The idea is to force clients to buy in-house HISAs in mutual fund form. Don’t be shocked: The rates paid by these products are typically 4.05 per cent, at the low end of the range for HISAs designed for investment accounts.
A rate of 4.2 per cent was available in mid-May from HISAs offered by Equitable Bank, Home Trust and Manulife Bank, while the CI High Interest Savings Fund offered 4.6 per cent. HISA ETFs were in the 4.8 per cent range in mid-May and can be expected to remain there until the Bank of Canada starts cutting its benchmark rate.
— Rob Carrick, personal finance columnist
